Square Stock in Rough Shape; Investors on Standby

Square Stock in Rough Shape; Investors on Standby

Square (SQ) stock had an underwhelming year. It is down around 4% year-to-date, struggling to put in a bottom after its latest bear market plunge. The $100 billion financial services and payments company had been quite hot over the past five years, doubling up many times over. So, it was just a matter of time before the name finally had a chance to cool off, giving its top- and bottom-line a chance to catch up to its incredibly lofty multiple.

Even after a 20% peak-to-trough drop, though, Square stock is still up considerably (around 160%) from its pre-pandemic high, leaving way more room to the downside if the company can't pass the high bar analysts have set for it. At writing, shares of SQ trade at around six times sales and 228 times trailing earnings. Not cheap, but certainly not the most expensive growth stock in the world, especially as more rivals go after the red-hot fintech space.

My main concern with Square is the competitive threats that could take a major stride out of the company's incredible growth. Yes, Square is still growing at an impressive rate, with net revenue rising 27% and gross payments volumes rising 43%. However, it will become tougher to maintain such numbers at such impressive levels, as pressure from rivals, both large and small, increase with time. For that reason, I am bearish on SQ stock at these valuations.